What Happens If I Don't Get Insurance Under "Obamacare"?

"Obamacare" or otherwise known as the The Patient Protection and Affordable Care Act was enacted into law on March 23, 2010. It requires that all citizens have a minimum required level of health insurance coverage in place by 2014. Starting on January 1, 2014 , all citizens will be able to purchase a qualified health plan from private health insurance companies either through their state's Health Benefit Exchange or through the private market. Nothing will change in regards to insurance still being provided through private health insurance companies. You will be able to purchase a qualified health insurance plan through your state's exchange that provides the essential health benefits package under Act Sec. 1302(a) of the law.

What's the minimum coverage that I am required to have under the law?

Per § 36B(c)(2)(C)(ii) of the current version of the tax code and section 5000A(f)(2) of the law :

 (ii) COVERAGE MUST PROVIDE MINIMUM VALUE.—Except as provided in clause (iii), an employee shall not be treated as eligible for minimum essential coverage if such coverage consists of an eligible employer sponsored plan (as defined in section 5000A(f)(2)) and the plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs.

The tax and affordability rules are still being debated, but you essentially have to show that you have at least minimum essential coverage and value. This level of coverage is referred to as the "bronze level" in the pending exchanges and is equivalent to coverage that pays at least 60% of covered costs. So, whether you buy the insurance policy starting January 1, 2014 through one of the exchanges, in the standard market or have coverage through your employer or other qualified plan provider (VA, co-op, non-profit, etc.); you have to have at least a plan that pays a minimum of 60% of medical care costs (A 60% indemnity plan).

Although the law states that the plan must have 60% "actuarial value" , the Consumers Union has stated that this doesn't necessarily translate to 60% of the medical cost. It is anticipated that the rules will likely be refined to clarify the intent of the law being that the minimum plan should have at 60% medical costs covered. There are also rules regarding what types of coverage must be offered in that the plan must provide essential benefits that include ambulatory care, emergency care, hospitalization, maternity, mental health , substance abuse ,prescription drugs, rehab services, lab services, preventative care and pediatric dentist and vision care.

How much am I expected to pay for health insurance under the law?

If you are low income, which is considered a gross income between 100% to 400% of the Federal Poverty Line (FPL), then you qualify for the new premium tax credit to help you pay for health insurance. You are allowed to take this credit immediately after January 1, 2014 to help you pay your insurance premium. The credit can even go directly to your insurance company. Your maximum out of pocket costs for paying the premium under the law for those who are eligible for the tax credit is from 2% for those nearest the poverty line up to 9.5% for those at 400% of the poverty line. These are the affordability guidelines under code 36B(c)(2)(C). Anything above 9.5% is considered unaffordable under the guidelines.

Essentially any individual making up to approximately $45,000 per year or family of four with an income up to $75,000 per year will likely be eligible for a tax credit starting January 2014. An individual near the poverty line just above the medicaid eligibility would pay as little as approximately $25 per month up to about $50 per month for a family of four. Near the top end of the tax credit eligibility range, your out of pocket maximum will be approximately $350 per month for an individual to $590 per month for a family of four. Anything above these amounts will be covered through the tax credit.

If your income is below 133% of the poverty line, then you should qualify for medicaid which is a qualified plan under the law along with Medicare, VA, etc. This income limit was recently increased upon passage of the Health Care and Education Reconciliation Act § 1004(e)(2).

Even if you have employer sponsored health insurance as will be required by employers with 50 employees or more, then your employee out of pocket costs for premium payment can't exceed 9.5% of your household income under pending tax code 36B(c)(2)(C):

(C) SPECIAL RULE FOR EMPLOYER-SPONSORED MINIMUM ESSENTIAL COVERAGE.—For purposes of subparagraph (B)—

(i) COVERAGE MUST BE AFFORDABLE.—Except as provided in clause (iii), an employee shall not be treated as eligible for minimum essential coverage if such coverage—

(I) consists of an eligible employer-sponsored plan (as defined in section 5000A(f)(2)), and

(II) the employee’s required contribution (within the meaning of section 5000A(e)(1)(B)) with respect to the plan exceeds 9.5 percent of the applicable taxpayer’s household income.

Under rules governing “employer shared responsibility,” the Act separately subjects “applicable large employers” (those with 50 or more full-time equivalent employees) to a requirement to make “assessable payments” in instances where any full-time employee qualifies for a premium tax credit and the employer either (1) fails to offer group health plan coverage to all its full-time employees, or (2) offers coverage to all its full-time employee that is either “unaffordable” or does not provide “minimum value.”

In other words, your employer (in a company of 50 or more employees) will be responsible for the rest of the premium above this 9.5% limit for at least the minimum coverage.

What happens if I don't get coverage?

Essentially what the law states is that you either show that you have the minimum coverage from a qualified plan or you pay an annual tax penalty. New IRC code § 5000A states the penalty as equal to or greater of the following:

1.  2.5% of the amount by which the taxpayer’s household income for the tax year exceeds the threshold amount of income required for income tax return filing under section 6012(a) OR
   
2. $695 per uninsured adult in the household.

This penalty will be phased in from 2014 through 2016. In 2014, the penalty will only be 1% or $95 per uninsured adult. In 2015, it will be 2% or $325 per uninsured adult. In 2016, it will be the full penalty. If you are low income and can show hardship, then you may be exempt per IRS rules.

One very interesting part of the new IRC code § 5000A is that the act specifies that liens and seizures are not authorized to enforce this penalty and non compliance will not be subject to criminal penalties. That's right, the IRS can't enforce the non-payment of this penalty as the law is currently written. It will apparently be considered a subordinated tax. It may be subject to civil penalties or enforcement similar to unsecured debt. Check with a qualified legal professional for more information on noncompliance.

What if I don't want to use the exchange?

You can also find individual plans from major private health insurers. If you want to compare rates and quotes , then we recommend InsureMe where you can compare rates from dozens of health insurers such as Aetna, Humana, BCBS, Anthem, United Health and many more. They also include quotes from independent insurance agents as well. eHealthInsurance.com is another great source of plan comparisons.

What if I have a pre-existing condition and was denied coverage?

Currently, insurance companies can still deny coverage until January 1, 2014 due to pre-existing conditions. After this date, they will no longer be able to deny you coverage and premiums will be limited by law. If you have been turned down for health insurance in the meantime and don't qualify for medicaid, then you may be eligible for coverage through a temporary high risk pool (PCIP) These PCIP's are also a new requirement of the law.

References Mintz Levin Advisory , Journal of Accountancy

This should not be considered financial advice which can only be given by a qualified financial professional. We suggest you consult with a qualified financial planner, legal or insurance professional who is most qualified to consult with you regarding policy decisions. Many factors are involved in your policy premium and approval; some of which may not be mentioned in this article. Federal laws and guidelines change frequently and any changes to these laws may not be reflected in this article. We are an affiliate of the Bankrate Insurance Network.

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